Ge neral Se ssio n

FAFSA – IRS Match
Jeff Baker Federal Student Aid Dan Madzelan Office of Postsecondary Education Jeanne Saunders Federal Student Aid
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Today’s Topics
      Introductions Background Legal Status Challenges Implementation Ideas What’s Next?
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Introductions
Jeff Baker Federal Student Aid jeff.baker@ed.gov Dan Madzelan Office of Postsecondary Education dan.madzelan@ed.gov Jeanne Saunders Federal Student Aid jeanne.saunders@ed.gov
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Two Words to Remember --

“Uncertainty” “ Collaboration”
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Background

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Why Is a FAFSA – IRS Match Important?
THE RIGHT MONEY TO THE RIGHT PEOPLE AT THE RIGHT TIME IN THE RIGHT WAY  More than $300 million per year in Pell Grant overawards  Included in President’s Management Agenda  Included in Department’s Strategic Plan  Savings in President’s Budget

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Is a FAFSA – IRS Match a Big Deal?

YES!!!
A match of FAFSA data with tax data from the IRS will be a major event in the history of student aid program administration As significant as –
– – – – – Creation of the Pell Grant Program Common Form Single Need Analysis Methodology Unsubsidized Loans Direct Loans
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What is the FAFSA – IRS Match?
A FAFSA – IRS Match would compare selected data from an applicant’s FAFSA with comparable data submitted by the taxpayer to the IRS:  Adjusted Gross Income  Taxes Paid  Total Earnings from Employment  Filing Status (e.g., single, married)  Type of Tax Form (e.g., 1040, 1040A, 1040EZ)
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Legal Status

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Why Don’t We Already Have a FAFSA – IRS Match?  1998 HEA Reauthorization  Internal Revenue Code Section 6103  1998 IRS Restructuring and Reform Act
– Confidentiality Studies
• Treasury Department • Joint Committee on Taxation

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Confidentiality Studies
 “If (a business case can be made), section 6103 should be amended to permit disclosure of necessary items of information for income verification … as contemplated by the HEA.”  “… if adopted, this provision should permit access by contractors, subject to (certain) limitations.”  “The staff of the Joint Committee recommends that the present-law disclosure rules for using contractors for nontax administration purposes should not be expanded.”
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What is the Legal Status of a FAFSA – IRS Match?  HR 3613 – the “Student Aid Streamlined
Disclosure Act of 2003”  Introduced November 21, 2003  House Ways and Means Subcommittee on Oversight  Invitation to Comment by January 23, 2004  Outlook
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Challenges

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Challenges to Implementing a FAFSA – IRS Match?  Calendar Issues
– Tax Year and IRS Filing vs FAFSA Processing – Availability of Tax Data and Award Year

FAFSAs Received

Jan 1

April 15 IRS Filing Date

July/August IRS Data Available

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Change of Application Process Mindset FAFSA is a “two-step” process  File FAFSA as soon as possible  Update tax data as soon as returns are filed with IRS

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Challenges to Implementing a FAFSA – IRS Match?  Legal Authority Issues

– Use of Contractors – Release of Actual Data vs. “Fact of Discrepancy” to schools – School’s Third Party Servicers – Informing Applicant/Taxpayer
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Challenges to Implementing a FAFSA – IRS Match?
 Other Issues – SSN Mismatches – Late Tax Filers – Changes in Marital Status – Amended Returns – Non-filers – Applicants from Puerto Rico – Applicants with Foreign Tax Returns – Subsequent Corrections – Professional Judgment Changes
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What is the School’s Role?
 Help inform applicants of change

     

Communicate with applicant Ensure that updates are submitted Request documentation Notify ED/FSA of resolution Hold disbursement Collect/Report overpayment
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What is the School’s Role?

Disbursements
Responsible Once Notified of Problem – No additional disbursements – Assist in recovering overpayments – Possible tolerance for upcoming
disbursements

Verification
 IRS Match ultimate verification  Modify regulations  Allow schools great flexibility

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Implementation Ideas
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How Would a FAFSA – IRS Match Work?
 Start with demonstration match  Six steps in the income verification process
– – – – – Match FAFSA data with IRS data Identify discrepancies Determine impact of discrepancies Notify parties of IRS match results Perform resolution and hold or recover payments – Step 6: Analyze process
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Step 1: Step 2: Step 3: Step 4: Step 5:

Implementation Challenges Step 1: Match FAFSA data with IRS data  Timing of availability of IRS data  Selecting sample for matching in initial demonstration
– By Schools – By Students

 Timing and frequency of matching  Limits on use of contractors
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Implementation Challenges Step 2: Identify discrepancies  Provide file of applicants to IRS  “Material discrepancy” defined as greater of $100 or 1% of the item being matched

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Implementation Challenges Step 3: Determine impact of discrepancies  What constitutes a discrepancy that must be resolved?
– Change in EFC – Change in award amount

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Implementation Challenges Step 4: Notify parties of IRS match results  How will students and parents be notified of discrepancies?  How will schools be notified?  Will ED notify parties only when there is a discrepancy?  Release of data to Third Party Servicers prohibited  Use of contractors in notification process
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Implementation Challenges
Step 5: Perform Resolution: Hold Payments or Recover Overpayments  Resolve possible discrepancies
– Marital status changes – SSN mismatches – Professional judgment changes

 How to minimize disruptions to aid delivery?

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Implementation Challenges Step 6: Analyze process  Data  School feedback

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What’s Next?

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What’s Next?
 Legislative process  Continue to explore ways to minimize burden
– ED is developing different approaches to conducting FAFSA – IRS Match – ED has started asking for feedback from the financial aid community about match implementation – ED plans to involve the community throughout the match implementation process
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Comments, Suggestions, Offers
We appreciate your feedback, comments, and suggestions. Please e-mail your thoughts and ideas to: E-mail: irsmatch@ed.gov

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